The money multiplier is much lower today than it was twenty-five years ago because:
A. people are holding less currency today.
B. the currency-to-deposit ratio is much higher today.
C. there is less currency available today.
D. credit cards are more widely used.
Answer:
A country’s capital account:
A. is synonymous with the current account.
B. will be in a deficit position when the current account is in a deficit.
C. will be in a surplus position if the current account is in a deficit position.
D. reflects the sum of exports minus imports.
Answer:
A share of stock resembles a consol in all of the following ways except that the:
A. share of stock does not have a maturity date.
B. annual dividend the stock pays resembles the coupon on a consol.
C. prices of both can be computed using a variation of the net present value formula.
D. are both residual claims.
Answer:
During economic slowdowns (recessions) the velocity of money tends to:
A. remain relatively stable.
B. increase slightly.
C. increase dramatically.
D. decrease.
Answer:
Emerging market economies, compared to industrialized economies, have financial
markets that:
A. differ in composition and size.
B. differ in composition but not in size.
C. are the same in composition but differ in size.
D. are similar in composition and size.
Answer:
Globalization and trade:
A. expands economic potential in a similar fashion to productivity enhancing
technological progress.
B. shifts both the short-run and long-run aggregate supply curves to the right.
C. provide an opportunity to reduce inflation permanently.
D. all of the answers provided are correct.
Answer:
In the late 1970s into the early 1980s, interest rates were high and very volatile. During
this period:
A. the velocity of money should have been stable.
B. money demand as well as velocity should have also been shifting and volatile.
C. it should have been easy for the Fed to predict the velocity of money.
D. the Fed was actually targeting the short-term interest rate.
Answer:
If current output deviates from potential output, the short-run aggregate supply curve
may shift because:
A. aggregate demand has to shift.
B. potential output will have to shift.
C. input costs (including wages) adjust.
D. the economy’s long-run growth rate will have to adjust.
Answer:
Small savers would rather use financial institutions than lend directly to borrowers
because:
A. financial institutions will offer the savers higher interest rates than the savers could
obtain directly from borrowers.
B. lenders wouldn’t want to deal with small savers.
C. it allows them to diversify risk.
D. the liquidity is lower with financial institutions but the return is higher.
Answer:
Inflation targeting does all of the following except:
A. increase policymakers’ credibility.
B. increase policymakers’ accountability.
C. communicate policymakers’ objectives clearly and openly.
D. hinder economic growth.
Answer:
If the probability of an outcome is zero, you know the outcome is:
A. more likely to occur.
B. certain to occur.
C. less likely to occur.
D. certain not to occur.
Answer:
The function of providing liquidity by financial intermediaries:
A. includes depositors withdrawing funds but not borrowers.
B. only considers people who borrow on a short-term basis, but not depositors.
C. affects people who need to borrow and depositors who withdraw their funds.
D. only affects customers with savings accounts.
Answer:
Which of the following assigns widely followed bond ratings?
A. The Federal Reserve
B. The U.S. Treasury
C. The New York Stock Exchange
D. Standard & Poor’s
Answer:
Loans made between borrowers and lenders are:
A. liabilities to the lenders and assets to the borrowers since the borrower obtains the
funds.
B. assets to the lenders and liabilities of the borrowers since the promises are made to
the lenders.
C. not part of either parties’ assets or liabilities until the loans are repaid.
D. liabilities to both the lenders and the borrowers.
Answer:
If Bank A sells a $100,000 U.S. Treasury bond to the Fed, Bank A’s required reserves
will:
A. not change.
B. increase by $100,000.
C. decrease.
D. increase but by less than $100,000.
Answer:
A $1,000 face value bond, with an annual coupon of $40, one year to maturity and a
purchase price of $980 has a:
A. current yield that equals 4.00%.
B. coupon rate that equals 4.08%.
C. current yield that equals 4.08% and a yield to maturity that equals 6.12%.
D. current yield that equals 4.08% and a yield to maturity that equals 4.0%.
Answer:
During the financial crisis of 2007-2009 the U.S. Federal Reserve used its powers in all
but which of the following ways:
A. lending to nonbanks.
B. accepting very illiquid collateral against its loans.
C. lowered bank reserve requirements.
D. lowered its policy rate to zero.
Answer:
To compensate for the collapse of intermediation and the fragility of financial markets
during the 2007-2009 financial crisis, central banks deployed all but which of the
following unconventional tools:
A. Forward guidance
B. Lowering interbank lending interest rate targets
C. Quantitative easing
D. Targeted asset purchases
Answer:
A decline in the yields earned by bonds should:
A. not impact the demand for money since money doesn’t earn any interest.
B. also decrease the demand for money.
C. increase the demand for money.
D. increase the velocity of money.
Answer:
Fixed exchange rate regimes include each of the following, except:
A. the Bretton Woods exchange rate system.
B. exchange rate pegs.
C. dollarization.
D. currency boards.
Answer:
If the current market federal funds rate equals the target rate and the demand for
reserves increases, the likely response in the federal funds market will be:
A. a decrease in the market federal funds rate.
B. a market federal funds rate that will equal the target rate.
C. an increase in the market federal funds rate.
D. nothing; the Fed would act immediately and the market would not be affected.
Answer:
Professor Jeremy Siegel, of the University of Pennsylvania, did research showing that:
A. owning stocks over the long run produces returns below the risk-free return.
B. if an investor owns stocks for a very short time the risk is greater than if the stocks
are held for a long time.
C. the return on the S&P 500 for a 25-year period often produces returns below zero.
D. bonds really are less risky to hold over the long-term.
Answer:
There’s a call option written for 100 shares of GM stock for $85.00 a share, prior to the
third Friday of October 2017: The option writer:
A. has the requirement to sell 100 shares of GM for $85 a share on or before the third
Friday of October 2017 if the option holder wants to exercise the option.
B. has the option to sell 100 shares of GM for $85 a share on or before the third Friday
of October 2017.
C. can cancel the option before the third Friday of October 2017.
D. does not have to post margin while the option holder does.
Answer:
Without a change in target inflation, anything that shifts the aggregate demand curve to
the right will cause:
A. a temporary increase in output.
B. a permanent reduction in inflation.
C. a temporary decrease in inflation.
D. an increase in output in the long run.
Answer:
Repurchase agreements are usually used by banks that:
A. have a need for long-term financing.
B. need cash for a very short period of time.
C. have negative net worth.
D. cannot obtain financing from any other source.
Answer:
Which of the following is an accurate statement about universal banks?
A. In Germany universal banks do everything under one roof, including direct
investment in the shares of nonfinancial firms.
B. In Germany the provision of insurance, banking, and securities must be done by
separate corporations.
C. As in Germany, universal banks in the United States do everything under one roof,
including direct investment in the shares of nonfinancial firms.
D. Universal banks in the United States account for the largest share of financial
intermediary assets.
Answer:
If Bank A sells some its loans to Bank B for cash, everything else equal:
A. Bank A’s assets decrease and Bank B’s assets increase.
B. Bank A becomes less liquid while Bank B becomes more liquid.
C. Banks A’s total assets do not change, but Bank A is more liquid.
D. Bank A’s liabilities decrease by the amount of the loans that are sold.
Answer:
If the Japanese yen appreciates against the U.S. dollar:
A. Americans should find Japanese goods are now less expensive.
B. Japanese residents would find Japanese goods are relatively less expensive than
American goods.
C. U.S. goods should have an easier time competing against Japanese goods in both
countries.
D. Japanese goods should have an easier time competing against U.S. goods in both
countries.
Answer:
If a Japanese Toyota sells for 2,500,000 yen and the nominal exchange rate is 110 yen/
$U.S., then the dollar price of the Japanese automobile is:
A. 22,727 yen.
B. $20,000.
C. $25,000.
D. $22,727.
Answer:
If the quantity of bonds demanded exceeds the quantity of bonds supplied, bond prices:
A. would rise and yields would fall.
B. would fall and yields would increase.
C. will rise and yields will remain constant.
D. will rise and yields would increase.
Answer:
Mary deposits funds into a CD at her bank. The CD has an annual interest of 4.0%. If
Mary leaves the funds in the CD for two years she will have $540.80. Assuming no
penalties for withdrawing the funds early, what amount would Mary have at the end of
one year?
A. $521.60
B. $490.00
C. $500.00
D. $520.00
Answer:
Capital is the cushion banks have against:
A. sudden drops in the value of their assets.
B. an unexpected decrease in liabilities.
C. liquidity risk.
D. moral hazard.
Answer:
If Americans develop a greater appreciation for Mexican-made goods, we should
observe the following change in the dollar-peso market:
A. the supply curve of dollars shifts right.
B. the demand curve for pesos shifts left.
C. the supply curve of dollars shifts left.
D. the demand curve for dollars shifts right.
Answer:
For the European Central Bank (ECB), the equivalent of the FOMC’s target federal
funds rate is the:
A. European target discount rate.
B. European target federal funds rate.
C. target refinancing rate.
D. London Inter-Bank Offer Rate.
Answer:
Interest on most bonds issued by states is usually exempt from:
A. state income tax but not federal.
B. from federal income tax but not state.
C. both state and federal income taxes.
D. from city income taxes.
Answer: